148A(b) Notice Cannot Be Used for General Inquiry; SC Upholds Quashing.

Issue

Whether a Show Cause Notice issued under Section 148A(b) of the Income-tax Act is legally valid if it is issued not on the basis of specific “information suggesting escapement,” but as a tool to conduct a general inquiry or “verification” regarding the assessee’s transactions.

Facts

The assessee-company filed its return for Assessment Year 2020-21.
The Assessing Officer (AO) issued a notice under Section 148A(b).
This notice did not contain any specific allegation of escaped income based on information. Instead, it was in the nature of a questionnaire, requiring the assessee to furnish information to prove the source, genuineness, and creditworthiness of loans received just after its incorporation.
The assessee objected, arguing that a Section 148A(b) notice is a show-cause notice that must state the information the AO possesses, whereas this notice was a general inquiry, which should have been conducted earlier under Section 148A(a).
The AO rejected the objection, passed an order under Section 148A(d), and issued a formal reassessment notice under Section 148.
The High Court quashed the entire proceeding, holding that a notice under Section 148A(b) cannot be issued for mere “verification.”
The Revenue filed a Special Leave Petition (SLP) against this decision in the Supreme Court.

Decision

The Supreme Court dismissed the Revenue’s Special Leave Petition (SLP).
It found no good ground to interfere with the High Court’s order.
This decision upholds the High Court’s judgment that the notice issued under Section 148A(b) was invalid, and consequently, the entire reassessment proceeding was void and quashed.

Key Takeaways

148A(b) is Not for Inquiry: An Assessing Officer cannot use the Show Cause Notice under Section 148A(b) as a tool to conduct a “fishing and roving” inquiry or general “verification.” Its purpose is to present the information already gathered and seek the assessee’s response to it.
Distinct Stages: The new reassessment procedure has distinct stages. Section 148A(a) is for the AO to conduct an inquiry (if needed). The SCN under Section 148A(b) is subsequent to that and must be based on the information gathered.
Invalid Notice Voids Proceedings: A notice under 148A(b) that does not specify the alleged escaped income and is instead a general questionnaire is fundamentally flawed.
Jurisdictional Defect: Such a defective notice is not a curable error but a jurisdictional one, which invalidates the entire reassessment proceeding from the start.

SUPREME COURT OF INDIA

Income-tax Officer

Onir Infraspace (P.) Ltd.^*

J.B. PARDIWALA and K.V. Viswanathan, JJ.

SLP (CIVIL) Diary No. 51226 OF 2025^†

OCTOBER 27, 2025

Ms. Madhulika Upadhyay, AOR, Bhakti Vardhan Singh and P.V. Yogeshwaran, Advs. for the Petitioner.

ORDER

1. Delay condoned.

2. Having heard the learned counsel appearing for the petitioner – Revenue and having gone through the materials on record, we find no good ground to interfere with the impugned order passed by the High Court.

3. The Special Leave Petition is, accordingly, dismissed.

4. Pending applications, if any, also stand disposed of.

B.S. Soparkar for the Petitioner. Mrs. Kalpana K. Raval for the Respondent.

JUDGMENT

Bhargav D. Karia, J. – Heard learned advocate Mr.B.S.Soparkar for the petitioner and learned Senior Standing Counsel Mr.Karan Sanghani for learned advocate Mrs.Kalpana K. Raval for the respondent.

2. Rule, returnable forthwith. Learned Senior Standing Counsel Mr.Karan Sanghani waives service of notice of rule for and on behalf of the respondent.

3. By this petition under Article 226 of the Constitution of India, the petitioner has challenged notice dated 05.03.2024 issued under Section 148A(b) of the Income Tax Act, 1961 (for short ‘the Act’) and order dated 24^th March, 2024 passed under Section 148A(d) of the Act and the consequential notice of the same date issued under Section 148 of the Act.

4.1. The brief facts of the case are that the petitioner-company which is incorporated under the provisions of the Companies Act, 2013 on 17.10.2019 filed return of income for Assessment Year 2020-21 declaring total income of Rs.2,58,250/- on 27.11.2020 which was processed under Section 143(1) of the Act on 28^th March, 2021 accepting the returned income.

4.2. The respondent issued an impugned notice under Section 148A(b) of the Act on 05.03.2024 requiring the petitioner to furnish information with respect to source, genuineness and creditworthiness of the persons who gave loans to the petitioner.

4.3. The petitioner filed detailed reply dated 16^th March, 2024 objecting to the validity of the impugned notice on the ground that such notice does not disclose any information with regard to the escaped income of the petitioner but it is in nature of inquiry to be conducted under Section 148A(a) of the Act.

4.4. The respondent passed the impugned order dated 24^th March, 2024 under Section 148A(d) of the Act rejecting the objection of the petitioner and issued the notice under Section 148 of the Act for re-opening of the assessment.

5.1. At the outset, learned advocate Mr.B.S.Soparkar for the petitioner submitted that the impugned show-cause notice issued under Section 148A(b) of the Act is fundamentally bad as there is no information which suggest that the income had escaped assessment and there is no inspection on part of the assessee which require to issue the notice to re-open the assessment.

5.2. It was further submitted that the reply of the petitioner is also not considered in proper perspective while passing the impugned order under Section 148A(d) of the Act as the same is passed entirely on different issue for which no notice under Section 148A(b) of the Act was issued. It was submitted that the respondent-authority could not have rectified the notice issued under Section 148A(b) of the Act in the order passed under clause (d) of Section 148A of the Act.

5.3. Referring to the impugned order dated 24^th March, 2024, it was pointed out that the order is passed on different basis requiring on the ground that the loan obtained by the petitioner is not used for the business purpose and accordingly, the entire order is on a different tangent. It was therefore submitted that there is no violation of contractual conditions by the petitioner by utilising the loan to purchase the property and even if it be so it does not amount to escapement of income for the respondent to take any action.

5.4. Learned advocate Mr.B.S.Soparkar, however, emphatically submitted that the impugned notice issued under Section 148A(b) of the Act is in nature of inquiry and the same is not issued as per the provisions of the said section. It was submitted that in the impugned notice, the respondent has called upon the petitioner to submit the information for verification which is not the requirement under the provisions of the Act.

5.5. In support of his submissions, reliance was placed on the decision of this Court in case of Safal Constructions India (P.) Ltd. v. Asstt. CIT [Special Civil Application No.10111 of 2023, dated 19-12-2023].

6.1. On the other hand, learned Senior Standing Counsel Mr.Karan Sanghani for the respondent submitted that merely because the names of the other companies are mentioned in the impugned notice, the same would not invalidate the notice as the petitioner has not disputed about the investment made in the Krish Group of Companies owned by Mr.Amit Katiyal and family members and it was found from the information that the said vendors of the property of the petitioner were managing all the affairs of the group companies and on the basis of the analysis, it was found that most of the entities were the shell entities used primarily for routing the funds.

6.2. It was submitted that the petitioner has also not denied the investment of Rs.61 crore in the property situated at Delhi and accordingly, as per the information information, it was found that the petitioner obtained the loans from the companies whose verification was required to be done and accordingly, the impugned notice was issued and the order was also passed taking into consideration the reply of the petitioner which clearly shows that the loans obtained by the petitioner was not utilised for the purpose for which it was obtained. It was therefore submitted that no interference is called for in the impugned order passed under Section 148A(d) of the Act.

6.3. In support of his submissions, reliance placed on the decision of the Hon’ble Culcutta High Court in case of Champa Impex (P.) Ltd. v. Union of India (Calcutta) and the decision of the Hon’ble Rajasthan High Court in case of Mohd. Sajid Bains v. ITO (Rajasthan) to submit that the writ petitions filed by the petitioner challenging show-cause notice issued under the Act is to be dismissed as the same are issued on the basis of the information available with the respondent-Assessing Officer and on considering the reply filed by the petitioner, prima-facie opinion is formed by the respondent-Assessing Officer that it is a fit case to re-open the assessment of the year under consideration.

7. Considering the submissions made by learned advocates for the respective parties and on perusal of the impugned notice issued under Section 148B of the Act, it is not in dispute that the said notice is issued for calling upon the petitioner to submit various details for verification of the data which leads to the only conclusion that the notice is issued for inquiry as contemplated under Section 148A(a) of the Act. The relevant portion of the said notice is reproduced hereinbelow :

“As per the above report, the assessee has introduced long term borrowings of Rs.61,00,00,000/- just after the incorporation of the assessee company and the source, genuineness and creditworthiness of the person from whom loan received by the assessee has to be verified.

With respect to the long term borrowings of Rs.61,00,00,000/- taken during the Financial year, kindly submit the below specified details:

(a)

Name and address of the lenders of the loan.

(b)

PAN of the lenders.

(c)

Amount of loan accepted during the year.

(d)

Amount of loan repaid during the year (squared up loan).

(e)

Quantum of interest paid and rate of interest.

(f)

Business purpose for which the loan was taken and income earned by utilisation of funds.

Provide documentary evidence to substantiate the identity of the lenders and ITR of last 3 years of the lenders to substantiate the creditworthiness of the lenders.

Kindly provide documentary evidence to substantiate the genuineness of the above specified transaction. In case of failure to furnish the above details, it may be treated that the income to the tune of Rs.61,00,00,000/- has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all the material facts necessary for assessment year 2020-21 within the meaning of section 147 of the Income Tax Act. On verification of the information flagged in the case of the assessee, it appears that income chargeable to tax has escaped assessment and therefore, before forming the opinion for issuing the notice under section 148, an opportunity of being beard is required to be provided to the assessee as per provisions of section 148A(b) of the Act. Therefore, it is proposed to issue a letter as per provisions of section 148(b) of the Act, requesting the assessee to show cause as to why a notice under section 148 should not be issued on the basis of the information which suggest that income chargeable to tax has escaped assessment for the assessment year under consideration.”

8. On perusal of the above details called for by the respondent in the notice issued under Section 148A(b) of the Act, it would be germane to refer to Section 148A(b) of the Act, which reads as under :

“Section 148A(b): provide opportunity of being heard to the assessee, [***] by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than seven days and but not exceeding thirty days from the date on which such notice is issued, or such time, as may be extended by him on the basis of an application in this behalf, as to why a notice under section 148 should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of enquiry conducted, if any, as per clause (a).”

9. On perusal of the above provisions, it appears that the Assessing Officer before issuing the notice under Section 148 of the Act has to conduct the inquiry with prior approval of the specified authority with respect to the information which suggest that the income chargeable to tax has escaped the assessment and after such inquiry, issued the notice under Section 148A(b) of the Act to provide an opportunity of being heard to the assessee by serving a show-cause notice. However, in the facts of the case, the respondent has issued the notice under clause (b) of the Section 148A of the Act as if the inquiry is to be conducted under clause (a) of Section 148A of the Act and therefore, the impugned notice cannot be commensurate the requirement of clause (b) of Section 148A of the Act as such notice could have been issued only after conducting the inquiry on part of the respondent-Assessing Officer.

10. In case of Safal Constructions India (P.) Ltd. (supra), this Court in similar facts, has held as under :

“[36] Considering the above facts, notice dated 28^th March 2023 along with the Annexures issued under Section 148A(b) of the Act cannot be said to be the notice requiring the assessee to provide an opportunity of hearing to show cause as to why the notice under Section 148 of the Act should not be issued on the basis of the information which suggests that the income chargeable is escaped assessment. The notice is only in the nature of inquiry as contemplated under Section 148A(a) of the Act, which provides that before issuance of any notice under Section 148 of the Act, the Assessing Officer shall conduct an inquiry, if required, with prior approval of the specified authority with respect to the information which states that the income chargeable is escaped assessment. Therefore, though the notice was issued under the provisions of Section 148A(b) of the Act, in fact, such notice is under Section 148A(a) of the Act as the ingredients of notice which requires as per the statutory provisions of Section 148A(b) are not mentioned. The Assessing Officer has not provided any details with regard to income which has escaped assessment, but has called for the details for the period from the Financial Year 2014-15 to 2015-16 without mentioning the income as escaped assessment for the relevant Assessment Year 2016-17.

[37] The Assessing Officer, for the first time, in the order passed under Section 148A(d) of the Act has mentioned about bifurcation of the total transaction of Rs.791.22 Crores out of which credit entries amounting to Rs.86,63,62,755/- was mentioned pertaining to the period from 1st April 2015 to 27th April 2015 in the Suspicious Transaction Report.

[38] On perusal of the impugned order under Section 148A(d) of the Act, the Assessing Officer did not consider any of the contentions raised on behalf of the assessee on merits and reiterated only extract from the Suspicious Transaction Report in para 6.2 of the order. The assessee has been given the entire details of transaction in reply along with the annexures, however, the Assessing Officer did not consider the same and only observed that the assessee did not adduce any supporting document establishing the identity of the parties, genuineness of transaction and creditworthiness of the counter parties justifying the bank account transactions carried out are related to the business parties of the assessee. On perusal of the record, it appears that the petitioner – assessee has submitted all the details along with reply filed on 9^th May 2023,. In such circumstances, in view of the above facts, the impugned assessment order under Section 148A(d) of the Act is not sustainable as the Assessing Officer has failed to set out any opinion on the basis of the available information and material on record to arrive at the finding that it is a fit case to reopen the assessment under Clause (b) of Section 148A of the Act. In the case on hand, we are not required to examine the correctness of the contentions qua the facts of the case as raised on behalf of the petitioner as it would be premature as the case of the petitioner is based upon the legal contentions that the notice under Section 148A(b) of the Act is in the nature of notice under Section 148A(a) of the Act and that the notice issued under Section 148A(b) is without considering the contentions raised by the assessee in the reply to the notice under Section 148A(b) of the Act as per Clause (c) of Section 148A of the Act. On perusal of the notice under Section 148A(b) of the Act, it is clearly seen that the annexures do not contain any information, it is a questionnaire requiring the petitioner to provide details as sought for and therefore, it was an intention of the Assessing Officer who was to conduct an inquiry after receiving information from the assessee and therefore, notice is deemed to be the notice under Section 148A(a) of the Act. Thus, there is a gross procedural error from the very inception of the procedure rendering the same is bad in law.

[39] For the reasons recorded as above, as the notice dated 28^th March 2023, though stated to be issued under Clause (b) of Section 148A of the Act, the same is, in fact, a notice under Clause (a) of Section 148A of the Act can be treated as such. As the time to issue notice under Section 148A(b) of the Act has already expired, no purpose would be served by issuing direction to the Assessing Officer to conduct an inquiry considering the reply of the assessee as to whether to issue notice under Section 148A(b) of the Act or not.”

11. In view of the above, we are of the opinion that the impugned notice issued under Section 148A(b) of the Act could not have been issued for verification on the part of the respondent-Assessing Officer and therefore, the same would fail and accordingly, the petition succeeds and the impugned notice dated 05.03.2024 and the consequential order under Section 148A(d) of the Act and the notice under Section 148 are hereby quashed and set aside. However, we make it clear that if the respondent wishes to re-initiate the proceedings under the provisions of the law this order would not come in way and the respondent would be at liberty to initiate such proceedings as per the provisions of the Act. Rule is made absolute to the aforesaid extent. No orders as to cost.